Is buying a home right for you?
5 steps to consider
Home ownership is the ultimate American dream. Here are five items to keep in mind during the home buying process.
1. Mortgage interest, property taxes and any loan "points" paid to get a lower interest rate may be tax deductible
All are generally deductible from your taxes when you buy a home. And since mortgage interest can make up the bulk of your monthly payments for many years, this deduction can really add up at tax time. However, know that property taxes are calculated on the selling price of the home, something that many new homeowners might fail to consider before they buy a home.
2. Homeowners Association (HOA) fees can add up
If you purchase a condo, town home or in some areas, a single-family home, you'll have to pay monthly HOA fees to cover the costs of landscaping, common ground maintenance, pool and spa maintenance, and general upkeep for the property. Know that HOA fees are not tax deductible, and over time, tend to go up rather than down.
3. Home insurance is a must have
If you ever get behind on your insurance payments, you'll surely hear about it from your mortgage lender, as they have a vested interest in your investment. For those who have to pay a HOA fee, sometimes the property insurance is included in the monthly fee.
4. Save more than just your down payment
For new homeowners, a bigger concern than being able to afford the down payment is being able to afford the monthly payments. Some buyers fail to consider the true cost of home ownership, which may include upkeep, maintenance, taxes, HOA fees, insurance and potentially higher utilities. Additionally, if your down payment is less than 20 percent, you may have to pay Private Mortgage Insurance (PMI). Once the loan-to-value ratio reaches 80 percent based on the value of the home at loan origination, you can petition to have PMI cancelled. But in the meantime, PMI helps protect the lender in case the borrower does not repay the loan.
5. Check your credit
Before you begin to shop around for a home, it's always good to check your credit score and credit report. By knowing your credit score, you may be able to negotiate a lower interest rate or a better term on your loan. By checking your credit report, you can see the same type of information that lenders see, as well as check for potential inaccuracies.
By doing your financial homework and keeping your options open, your home-buying experience can be a positive one.
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